When Big Oil Was "The Great Vampire Squid" Wrapped Around America

Robert Engler's award-winning 1955 investigation into the oil industry

August 29, 1955

This writer’s interest in the problem of power has been a recurring one. My interest in oil began several years ago during the “tidelands” dispute. The speeches then were ringing and long. The hearings filled a shelf. After following them for awhile, I became dissatisfied with both the accusations of liberals who reduced the issue to a question of the “oil lobby” and those who resolved it into a matter of high principles and states’ rights.

I looked for the much-mentioned oil lobby, and found it. But also I found an oil government—a private government of oil carefully interwoven with a public government run by oil. I looked for power-mad federal bureaucrats hell-bent on socializing America; I found public servants who believed deeply that offshore oil belonged to the nation rather than to a few states or companies, and that leasing of such lands for development by corporate interests should be under federal jurisdiction. Rarely did I encounter anyone who understood and was willing to tackle the problem on the basis of the power of the oil industry.

Since the very beginnings of this nation there have been periods when men debated openly the relation of concentrated economic power to political democracy. In the post-Civil War period, private economic power was identified with individual giants like Rockefeller or Carnegie. “Wall Street” came to symbolize the locus of private rule in American life, the source of influence or decision-making over the lives of men on the prairies of the Northwest, the plantations of the South, and in legislative halls everywhere.

Such a time seems to have long since passed. The age of the corporation makes it difficult to talk in these terms. Few citizens can name the chairman, let alone a single member of the Board of Directors, of the Standard Oil Company (New Jersey), a holding company which is many times the size of the original Rockefeller empire split up by court edict in 1911. Equally little is known about the politics or structure of the other oil giants, although together with Jersey they comprise nine of the 17 manufacturing corporations with assets of more than $1 billion. Formidable perimeters of defense manned by public relations specialists, lawyers, lobbyists, and vice presidents keep the immediate corporate economic activities well insulated from a not-too-interested public, while placing the spotlight on good deeds.

It is a commentary on our times that when “political” power is spoken of in relation to oil, chances are that we have in mind men like H.L. Hunt and H.R. Cullen—Texas millionaires who are actually small fry in the oil business as they are in the political arena. These men are vocal and their doings are relatively visible. Hence they have become synonymous with “oilmen in politics.” Although exceedingly complicated, oil’s international involvements have become better known than its domestic ones, through frequent press references to cartels, Near-Eastern policy, and strategic materials.

To focus on international power and ideological struggles seems more pressing, and a period of prosperity takes the edge off the urgency for such an inquiry at home. Only older and unreconstructed native radicals talk of “Wall Street”; and “vested interests” is language generally reserved for daring candidates, usually Democratic, on the hustings. Even those willing to see the relevancy of the question to the course of democratic survival are uncertain where power resides. Some scholars argue that business power is balanced by labor, by agriculture, by competing corporate clusters, by government—all presumably separate forces which align and realign so as to prevent the domination of the country by any single segment. This concept assumes that the historic image of a liberal society in which individuals check and balance one another at polling booth and in the marketplace has been adjusted to groups balancing one another. Others conclude that power is so scattered as to make impossible the discernment of any one center.

In an age where politics is increasingly the basis for economics and government the vehicle for private ends, the formulation of public policy has become a deadly serious struggle for power. Entailing the highest stakes, only the surface portions of these conflicts operate through such formally defined political channels as voting.

Oil serves as one useful springboard for analyzing the problem of power in America. On a time-power scale of history its reign as a basic energy resource conceivably could be relatively short, for oil comes into its own just prior to the dawn of the atomic age. But meanwhile it remains one of the nation’s giant industries, furnishing us ever-growing amounts of energy and power.

Where the interests of oil lie, what oil wants, how it goes about getting what it wants, the resulting impact upon public policy and democratic society, these provide the framework for this series of articles. There is considerable evidence that the oil industry knows how and when to use the state and national agencies to attain its objectives, just as it knows when government’s intervention as an ally is not desirable. There is less evidence that the American people know where they want to go—either in terms of formulating a national oil policy to replace our current legally archaic and administratively irresponsible approach to this resource, or more broadly, in terms of the general impact of private economic power upon democratic ideals and practices.

The problem throughout is not evil but power.

WHAT OIL WANTS

To ask an oilman if he or his company is involved in politics is equivalent to asking a businessman if his business are unethical. The reactions is immediate and indignant. Certainly no industry publicly sounds more eager to preserve the American mythology of the separation of economics and politics. Yet oil is a prospering industry which does exceedingly well in achieving all those objectives requiring the aid or sanction of government. And regardless of the protestations or the achievement of oil, the individual oil corporations and the large trade associations in which they are joined, are in themselves essentially political as well as economic.

The oil corporation as a political institution has roots going back to the origins of the industry. The one-man divining-rod ventures, the stock promotion drilling companies, the state incorporation of private refineries, the running of pipe lines and the contests over their use and control, the abortive trade associations, the emergence of the Rockefeller empire, the frantic appeal of small businessmen for government to check monopoly, the famous Standard Oil dissolution decree of 1911, and the development of the industry as a carefully structured system of private government—state, national, and international—are each more or less distinct stages in this evolution.

Oil, with gross assets estimated at over $40 billion in production and refining alone, supplies the nation with some 35 to 40 percent of tis fuel energy requirements. Better than ten percent of the land area of the country is under lease for oil and gas development. With gas, it is the largest single purchaser of capital goods. It is the biggest single item in international trade.

What does such an industry want from government? What are its relationships with the political processes? Why is it so successful in these dealings? And what is its impact on the American society?

Oil is interested in the whole range of American foreign policy, from Iran to fishing rights in the Gulf of Mexico, and from reciprocal trade to the decentralization of I.G. Farben. Involved companies successfully pressured the State Department against an embargo on oil to Italy during the Ethiopian War and argued for the appeasement of the Arab world during the Palestine controversy. In its councils are discussed the statehood of Alaska, mineral leasing rights in Montana, and the highway taxes of every state. Oil wants to see public lands developed, not just held by government. It watches government experiments in synthetic rubber and liquid fuel. It fears the rivalry of atomic energy and is determined to keep its peaceful development under control.

Oil wants to be the arbiter of when and where government takes responsibility in relation to oil. It has preferred state to federal control of offshore oil, a development whose worth the industry persistently deprecated publicly prior to the 1953 “tidelands” legislation but which now is spoken of frankly in the Oil and Gas Journal as the “richest drilling prize in the history of the oil business.” While maintaining a public air of indifference, oil fears and quietly opposes the earmarking of federal royalty and bonus money for education because of its potent political appeal. And it wants no regulations on the production and gathering of natural gas, the overwhelming bulk of which is produced in conjunction with oil and by affiliates of the major oil companies. It fears this will lead to the regulation of oil production.

Oil wants the sanction of public government wherever its own private practices risk running counter to the legal or value systems of the American people. Thus it receives State Department and National Security Council backing in setting up and maintaining an essentially cartel patterning of world oil production which keeps the control of oil from the well to the ultimate consumer under the apportioned domination of seven major companies and their intricately linked affiliates. As part of its price for contributing to war mobilization during World War II, oil pressed for and received a moratorium from anti-trust investigation and litigation.

Since 1935 the industry has received periodically from the Congress basic legislation authorizing an Interstate Oil Compact Commission. With conservation its avowed objective, this body serves as an effective meeting place for coordinating the official production and pricing controls characteristic of most oil states and designed to ensure that production never outruns “market demand,” i.e., the amount the industry estimates is likely to be consumed at industry-set prices. This has been a consistent objective since the earliest days of oil history when production quotas were set secretly by private groups. Nominally an organization of state officials, the Commission is under the constant surveillance of the oil companies who have always recognized it as an instrument for forestalling federal regulation. In past years oil companies have flown state members to the meetings, and the natural gas industry has footed banquet bills. The technique is more sophisticated today, although as usual the industry’s vast private airplane fleet remains one of the significant ways the industry has for flattering and serving modestly paid political and administrative personnel at all levels. (In 1953, the Aircraft Industries Association reported the oil industry had more planes than the scheduled airlines.)

The market forecasts from the US Bureau of Mines and the production quotas set by state agencies, notably the Texas Railroad Commission, are in effect industry predictions made under the protection of public law. Oil thus avoids the twin horrors of competition and anti-trust action. Production in excess of the prorationing orders of state agencies violates state law, just as interstate shipment of such “hot oil” violates the Federal Connally Act. Prorationing is favored by the states to help independent producers get their share of the market, but the real power remains in the hands of the pipelines and refiners far beyond state boundaries. Potential oil states are fitted into this system by conservation (market demand) laws introduced even before oil is found. After the late Senator Kenneth Wherry (R. Neb), never noted for his hostility to business, investigated this entire operation, he suggested that the President should suspend the Connally Act because of its use to create shortage and maintain price. Concluded his Small Business Committee: “There is a mechanism controlling the production of crude oil to market demand that operates as smoothly as the finest watch…”

Currently much of big oil favors the use of state power to force recalcitrant producers to cooperate in the joint operation of fields. This has merit as a conservation measure. It also reveals oil’s willingness to use government coercion when convenient, raising intriguing questions as to the industry's presumed commitment to the competitive system. (In the early 'thirties, the head of Standard of New Jersey even proposed that the government operate the flowing East Texas fields on a unitized basis.)

The industry is always careful to supply appropriate agencies of the federal government with a steady stream of temporary suitable personnel. This is an interesting contrast with other areas of government-business relations where the normal peacetime manpower flow tends to be from government to business and the level of ability of businessmen in government is considerably lower. During World War II, approximately 75 percent of the executive and technical staff of the Interior Department's Petroleum Administration for War came from the industry or closely allied fields, with less than ten percent coming from other government agencies.

Paradoxically, it was Secretary of the Interior Harold Ickes, the honest and outspoken public servant who was later to resign from Truman’s cabinet over the nomination of California oilman Edwin Pauley as Undersecretary of the Navy, who accepted and developed this pattern. In 1936 Ickes had confided in his diary, that "an honest and scrupulous man in the oil business is so rare as to rank as a museum piece." He likened dollar-a-year men in the War Production Board to crawling maggots looking out for their private interests. Reassuring those who warned him about business taking over government, he made clear he had no illusions about oil. But he explained that you could not get the industry to cooperate unless it participated in policy-making decisions, a judgment paralleling Walton Hamilton's definition of the War Production Board as "a House of Delegates from American industry." Ickes, for example, believed oil's 27.5 percent depletion allowance was "thoroughly unconscionable," but would not say so publicly lest this put him at cross purposes with oil interests and make his job more difficult. His chief aide was Ralph Davies of Standard Oil of California. Rated as able and public spirited, Davies' record hurt him with his company, which continued to pay his salary. Relations were severed after the war. One vice president recently summed up the episode: "We once had a guy who wanted controls—Ralph Davies. He was socialistic minded." The American Petroleum Institute’s William R. Boyd Jr. had a different conclusion: "It was a lucky day for America when the oil industry fell into the hands of its arch-enemy, Harold Ickes.”

Every action of Interior—once described by Robert La Follette Sr. as the peacetime "sluiceway" for a large part of the corruption to which government is subjected—is closely watched. Discussions and decision in oil and gas are quickly transmitted to industry circles and oil newsletters. One former Interior staff member tells that when in 1949 the Secretary sent an inquiry about in-perpetuity leases to the Director of Land Management, the next morning he received telegrams from Denver, San Francisco and elsewhere protesting any possible action.

At the time of Korea, oil people put great pressure to have the Petroleum Administration for Defense set up as an autonomous body reporting to the Secretary rather than through department channels. The various trade journals, closely linked to the industry, provide a good insight into the temper of the demand and oil's attitude towards government as a private preserve. For example, an editorial in the influential National Petroleum News in 1951 labeled government employees as the "inside U.S. Enemy" who hampered efforts in World War II:

“Oil as well as other big industries always will have to be ready to fight smearing attacks from the vicious and even just plain unintelligent bureaucrats and their supporters in Congress. Oil and other industries . . . will be on trial before a court of critics, if not down- right enemies, with "spies'* scattered liberally at jobs throughout industry s part of the war effort. . . . As in World War II, regulations for the most part will be drawn by men unfamiliar with a particular business or even any business. Among the volunteers to write these regulations will be the usual lot of unemployed or near unemployed reformers, people who can easily get away from their present jobs, and others who can use to advantage the thousand or so dollars additional they may get over their present modest pay.”

Their solution was that the American Petroleum Institute, which has been the target of serious antitrust charges by the Justice Department in the past "should take up the task of supervising all personnel that have to do with petroleum supplies no matter in what government service, military or civilian, or in what land."

This suggestion is not as far fetched as it might appear, in view of the interlocking relationship API has with government agencies. More than half of the hundred-odd members of the National Petroleum Council, the chief oil study and advisory body within Interior, are also directors of the API. Many are registered lobbyists or heads or representatives of oil trade associations. NPC's chairman, an oilman rather than a public official as is customary in government advisory agencies, is Walter S. Hallanan, president of the Plymouth Oil Company, Republican committeeman from West Virginia, and a supporter of Taft, MacArthur and McCarthy. Hallanan believes that "America has little to fear from its business giants, who have served the country so well, as compared with the very real and imminent peril that it faces from the giant of government." The NPC makes studies on oil questions at the request of the Secretary of Interior, using experts from the various oil companies.

A similar pattern holds true in the Defense Department's Office of Petroleum Logistics. Its head, General W. W. White (who remains on the payroll of his former employer, the Esso Export Corp.) explains that, "we build no empires here." The staff is small and by having an industry Military Petroleum Advisory Board "we in effect get working for us for gratis the companies' total employees and staff."

According to Assistant Secretary of Interior Felix E. Wormser, this Board "serves also to train industry personnel in the ways of Government operation and to keep the group advised on current problems so that an industry staff will be ready at all times to step into the leading positions of an emergency oil agency." With little danger of overstatement Wormser could thus recently report to a Senate Appropriations subcommittee that Interior's Oil and Gas Division has "established a most effective relationship with the oil and gas industry whereby through the National Petroleum Council, Military Petroleum Advisory Board, Foreign Petroleum Supply Committee, and the Gas Industry Advisory Council," the government receives industry's viewpoints.

Oil is quick to apply pressure upon those public servants who assume their responsibility for the handling of oil and gas extends beyond the industry. Witness the savage and successful assault upon ex-Federal Power Commissioner Leland Olds whose renomination was blocked because of his concern for the consumer and upon ex-Federal Trade Commissioner Stephen Spingarn whose character, mental stability and loyalty were publicly questioned because of his role in the release of a report on the international oil cartel in 1952. The staffs as well as policies of the Interstate Commerce, Federal Power and Federal Trade Commissions and the Justice, Defense and State Departments are closely watched.

Much of the industry's affection for the principle of states' rights is related to the recognition that it is harder to influence such figures as a Secretary of Interior, who, however amenable, is in the national limelight, than a state conservation commissioner who is obscure save to the immediate interest groups concerned. A Louisiana oilman contributed heavily to Earl Long's gubernatorial campaign reportedly in order to get rid of a Commissioner of Conservation. In the more sophisticated states you won't find oil that visible in politics, but neither will you see a commissioner unsympathetic to oil. Veto power is effectively exercised over gubernatorial choices for state geologists and regulatory officers. One can appreciate the virtues of local self rule when recalling the classic Texas prorationing controversy of 1931. Governor Ross S. Sterling, a former president of Humble Oil (a Standard of New Jersey subsidiary), ordered the state troops under the command of General Jacob F. Wolters to dose the wells. "Wolters," relates an oil history subsidized by Standard, "had been called away from his duties as chief counsel for the Texas Company."

Traditionally, individual oilmen in Pennsylvania, Texas, Oklahoma, Louisiana, California and the other oil states have exerted considerable influence in elections, Recalling his own experience with the power forces of his oil district which finally defeated him, a former Texas legislator and New Deal congressman made clear to the writer his conclusion that more than good citizenship is involved in these relations: The big boys from the utilities, the banks, railroads and oil and gas want to con- tribute to your campaign. They watch you to see if you are okay. Then they'll ask you how you stand on key issues if you are okay they'll want to contribute.

Membership on key Congressional and state legislative committees is screened for those who might be hostile to oil's requirements. Under the watchful lieutenantship of Speaker Sam Rayburn and Majority Leader Lyndon Johnson one test for a seat on the Senate Finance Committee and the House Rules and Ways and Means Committees, it has often been reported, is proper respect for the 271/2 percent depletion allowance provided for oil drillers. (It is the Ways and Means Committee which initiates revenue legislation.) Reliable men are also placed on all committees dealing with natural resources. For example, Price Daniel of Texas, who had made "tide- lands" his vehicle for capturing a Senate seat in 1952, was quickly placed on the Interior Committee by his Texas colleague, Lyndon Johnson.

Nor do the courts escape scrutiny. In 1951, the Texas House of Representatives, angered by the Supreme Court ruling in favor of the federal government’s paramount rights over offshore lands, adopted a resolution requesting the impeachment of Justice William O. Douglas as responsible for “leading three other members of the Supreme Court into a decision which is in violation of the Constitution…and…which…wantonly and wrongfully robbed Texas and its public school fund of property rightfully belonging to it…” Resource-minded figures like Judge Bottomly of the Montana Supreme Court, who had been one of the few state attorneys general in the nation to oppose state control of offshore lands and who from the bench had fought industry's attempts to exploit his own state's public lands, was one of oil's big targets when he was up for re-election in 1954. But oil energies today tend to be devoted more to overruling judicial action through legislative recourse, as evidenced in the natural gas proposals now being introduced in Congress.

In recent years, oil's concern over politics has become focused upon the Presidential race. It was more than coincidence that in 1948 the Dixiecrat party, part of a continuing plan to split and capture the Democratic Party, had as a major plank the state control of "tide- lands." Mr. Eisenhower's first legislative achievement in 1953 was the signing over to the states of portions of the offshore oil lands. The continuing appeal of this position is reflected in the recent announcement of Democratic Governor Kennon of Louisiana that he will back Eisenhower in 1956 if the Truman-Stevenson wing maintains power because his state is so much better off under Eisenhower. "We're taking in $60 or $70 million in tidelands oil, which we would not have received under the Democrats."

Nor has it been coincidence that a huge civil suit against five major oil companies—Standard Oil (New Jersey), Standard of California, Socony-Vacuum, Texas and Gulf—based upon the cartel report of 1952, apparently has been allowed to peter out, with the anti-trust suit being given little encouragement and inadequate staff ^o continue. At the same time the very companies in- solved in the conspiracy charges worked with the State Department and oilman Herbert Hoover, Jr., now Under- secretary, to resolve the Iranian oil crisis. It should be noted that in early January of 1953, on the eve of the grand jurymeeting to review the government's cartel case, and just as the Truman Administration was leaving office, the federal government dropped its criminal indictment against the big five, thus paving the way for the present administration's painless killing of the suit. This action was taken on the advice of the National Security Council at the insistence of the Defense and State Departments and the oil companies involved.

Shortly after the dropping of the indictment President Eisenhower appointed seven consultants to the National Security Council, including the presidents of Standard Oil Company (New Jersey), Monsanto Chemical, and Pacific Gas and Electric. The latter company, whose president James B. Black is also a director of Shell, has ties with Standard of California. Small wonder the Texas Company, whose overseas operations are closely integrated with those of Standard of California, could report to its stockholders and employees in the spring of 1953 that the 1952 election “strongly indicated endorsement of a great deal of what the petroleum industry stands for and believes in.”